A big state with a huge economy and complex laws, the laws relevant to the California Prompt Payment Act are found in numerous places throughout its legal code. From the Business and Professions Code to the Civil Code, they govern different types of projects in different ways. While this can be a complex maze for businesses looking to work and grow in California, with a little study or the help of a construction attorney, you can ensure you’re following the complex web of laws correctly. Here are just five of the many details you might need to know about California’s prompt payment act.
Good Faith Disputes
On private projects where the owner is directly responsible for paying the contractor, in general, the owner has to pay within 30 days of receiving notice demanding payment. However, if there is a good faith dispute between the two parties, the owner can withhold progress payments up to 150 percent of the disputed amount until the dispute is resolved. Wrongfully withholding payments, however, can result in a two percent per month penalty. Once the disputed work is completed, the owner must either pay the contractor within 10 days. Similar rules apply between general contractors and subcontractors.
Public Work Projects
In many ways similar to private projects, public work projects have a slightly different procedure for handling disputes. In these situations, the contracting public body has seven days to return a demand letter to a direct contractor if they’re disputing the work.
In many cases, it is possible in California to waive the prompt payment deadlines and agree to a new set of terms. In other situations, such as when working on California public university projects, this waivability is not addressed in the statutes. Contractors should pay attention to the type of project when reviewing the contract to determine if the terms are appropriate or if they’re waiving rights they would otherwise have.
Licensed architects, professional engineers, and surveyors are considered design professionals and have their own set of laws in California. For example, it is possible to contractually set late payment penalties in lieu of interest. Similar rules also apply to subcontracted design professionals.
In the event that a dispute ends up in court, in California, it is possible for the prevailing party to receive attorney’s fees as well as any proven damages. This is important since neither attorney’s fees nor prompt payment fees can be included in mechanics liens or bond claims.
Working through the different laws in California regarding mechanics liens, bond claims, prompt payments, employment, contracts, and more that applies to the construction industry can be confusing. Reach out to the construction attorneys at National Lien & Bond to schedule a free consultation and learn about how we can help you sort through the laws in any state you’re working in and ensure you’re paid promptly.
This blog is for educational purposes only and not intended for legal advice.